Tuesday, January 28, 2014

70 head small beef ranch

I'm going to talk about a tour I had of a beef operation, and I think it's good to say right up front that pretty much everything at this operation looked good. I'd definitely buy beef from this guy, and all of the steers and cows looked good -- good condition, bright eyed, healthy.

The ranchers father (who's 80 this year) talked a bit about his history with  beef cattle in this area; he talked about the beef market in the 50s and 60s and 70s, and described his reaction on seeing the newer beef breeds; how efficient the limosine breeds were vs others that he'd cut up, and basically laid the foundation for why they had chosen limosine as their primary herd genetic, with some crosses to black angus.     

This particular farmer had a split operation; his cow-calfs were at a farm about 10 miles away, his market steers and replacement heifers were at this barn complex that he leased from a farmer that his family knew; his father (the 80yo) took care of the steers on the weekdays at the barn complex while the son worked his full-time job as an electrician, and did the weekend work and the cow-calf care.  Their house is midway between these two locations.

Just a note about commute-farming, which is what I did for my first 7 years:  It really sucks, particularly when you have animal operations.  You've really got to have bomb proof fences to have any chance, and even with pretty good fences (and I've built a lot of fences!) you still get that call at 2am that your critters are out.  Good fences means that it doesn't happen as often.

Most of the talk centered around the steers and cows that he was looking to sell this year; in these pictures are yearling steers that he'd sold to 4H or FFA kids for their show animals.  Carefully selected, these are good-gaining cows, and will pretty much live the rest of their lives in this barn with the occasional trip.  He described a diet for the show animals as 10lbs of grain a day, (about two coffee-cans full of grain), a bale of hay (40-60lbs) and 20 to 30lbs a day of corn silage (ground up corn, stalks, cobs and all).  On that ration he expected his best steers to gain 2 to 3lbs a day during the next few months, ending at a hanging weight (more on this later) between 850 and 1050lbs.

I suspect that these show steers sell for a higher price than the average slaughter animal, but I didn't ask; sometimes farmers will sell animals to FFA / 4H kids for a discount; other times it's a profit center for the farm, depends on how he handles it.

This particular rancher is interested in growing his herd from the 70 that he's got now to roughly 90 over the next couple of years.  In another area of this barn he had 12 heifers that he'd selected on the basis of daily gain as good prospects for adding to his herd, and talked about what he does to select his new cows.

He's got a corral/chute system on one side of the barn with a cattle squeeze chute and a cattle-sized scale.  About once a month he runs all of the animals over the scale (and does whatever other treatment is needed) and records their weight on a whiteboard, calculating average daily gain primarily.  He's looking for cows that gain 2lbs or more over the course of their grow out, and is looking to breed them at 65% of their expected adult weight, which will be around 1500lbs; so he wants to breed them at approximately 1000lbs.  He is very particular about this group, too.  He wants the cow to have been born in february and to be able to sync to the calving of the rest of the herd.   To give himself the best shot, he brings in a vet as they get closer to breeding time and has the vet examine each cow via ultrasound; looking carefull at the development and maturity of the sex organs.  If a cow doesn't gain on schedule, or shows any signs of difficulty, it gets returned to the market corral and the best-looking heifer from that corral gets added to the replacement cow corral.  He'll do this until breeding time, April/May for february calving  The vet visit is done on an hourly basis; he estimates it costs him $200 to $300 for that trip.  Part of the reason that it's this amount and not more is that he's got a very nice cattle chute/squeeze/scale setup so he can run all of the cows through quickly.

 He does AI exclusively; took a course on how to do it from Select Sires, and his goal is to narrow the calving window down as far as he can.  He explained that a narrow calving window meant less work overall; if every cow calves within a week or two, you have a burst of work, and then things settle down much quicker.  He AIs the cows, and then turns them loose with a cleanup bull to make sure that everyone has the best chance of conception.

In order to make all of the cows ovulate at the same time, he'll use a vaginal insert that prevents ovulation; inserting it a week or 10 days before, on removal, he'll administer shots to promote ovulation, order the semen and 60 hours afterwards all cows get a dose, repeating that with a second dose 12 hours later.

This may seem like a lot of work, but I understand completely why he's doing this.  Having your animals in a consistent state allows you to treat them like a group for nutrition, bedding and housing.  It also allows you to schedule time from your full-time job (in this case his electrician job) during calving season -- you schedule your emergencies into a few weeks.  I guess it's not an emergency if its scheduled, is it?

If a cow shows up open, that is, not pregnant after this, she's deemed unthrifty and sold as grass fed beef at the end of the summer after grazing all year.  The cows that are pregnant are assessed after they deliver, and the existing cows in the herd are also assessed and some are culled.  So 12 replacement heifers in his experience will usually end up with 2 that don't get pregnant leaving 10 replacements, and depending on the year and conditions, he'll cull 2 or 3 cows from his herd, giving a net increase of 7 by next year.

For the animals that he's going to sell he estimates that his feed cost per day is about $3; he said "It's $1.49 in hay, $0.97 in grain, and $0.49 corn silage", and this gives him his average daily gain of around 2.1lbs across the herd.

He sells his cattle for $3.50/lb hanging weight, but what I really wanted to know is how much profit margin he's making vs his input costs.  Kill fee and cut-and-wrap fees are included in that amount.

HHW (hot hanging weight) is the weight of the warm steer immediately after slaughter.  This includes about 5% extra weight that will be lost as the animal cools and drains blood; typically beef is hung for two to three weeks after slaughter, and during this  hanging time the animal looses water weight.  Hanging weight includes the weight of the head and hooves; what is removed is the hide and the organs.  A typical yield for choice-grade cattle is 62% of live weight.

So to yield a 900lb HHW you'd need a 1500lb or so live weight steer.  So from what was said it costs about $1.50/lb (grain, hay, corn silage) to put a pound of live weight on a steer.  One pound of live weight is .62lb of hanging weight.  So it costs $1.50 to put on beef that you'll sell for $2.17.

Well, not really.  the quoted price of $3.5 includes kill fee and cut and wrap fees, which around here are about $60 for the kill and  $0.60/lb for the cut-and-wrap - so the gross proceeds to the farm aren't $3.5, they're $2.9.    And 62% of $2.9 is $1.79.  His gross margin is about $0.29 per pound - he makes about $0.60/cow/day.   If I were to pay someone to feed and water the cows, I'd expect that to take about an hour, or an hour and a half.  At $10/hour, that's a daily labor cost of $10 to $15.  at this rate, that's the entire profit from  51lbs of beef -- or 25 head.     Since I'd expect his production to be about 35 cows a year (70 cows * 50% bull calves) this enterprise survives on the profit from 10 cows after labor costs.  I don't know what he leases the barns for, or whether he owns or leases the other property his cow-calves are on, but there are costs there, too.

My opinion?  Thats a vanishingly small profit margin.  If a cow dies or doesn't gain as expected, or the lease on the barn goes up, or any one of a number of other things go wrong, there won't be any profit from this entire operation for the year.  It's possible that he makes more money on selling breeding stock or show steers and that makes up for this small margin, but I think his prices are a bargain at his expense.  Great deal for the consumer, considering the beef right now in the supermarket is way north of $3.5 a pound for virtually every cut.

I sell my beef at $3.5/lb hanging weight exclusive of kill and cut-and-wrap fees, and that extra $0.60/lb is the difference for me between making a profit and making a loss, after considering equipment, fuel, rent and other associated costs.

He showed samples of his beef, and they looked great.    I'd buy some.  And honestly, after looking at these numbers and his operation, I just might.  I don't think I could produce beef myself any cheaper.

I may have misstated some of these numbers; I'm going to go back to the farmer and confirm what I've written here to make sure I've got it down correctly.

Notes on forage:  He contracts a custom farmer to cut and bale hay on his ground, and with another farmer to produce corn silage and deliver it to his bunk.  He runs a 40hp utility tractor to move the silage around with, and buys his grain from a local feed mill and gets it delivered to his farm.  The hay is baled in small squares and is stored at the cow-calf operation; he brings in hay to the finishing barns as needed.


Across The Creek Farm said...

What you're doing here is what myself & another group of farmers do for each other. You just can't take things personally, it's easiest to have it done by a friend. It's really valuable to have buddies pick apart your operation. You ought to send the guy working a link to this post.

Bruce King said...

I did send him an email with a link. Farming as a business can be taken pretty personally; my intention there is to accurately model the business, and some folks get really upset when you do a rundown.

I talked about the profit when compared to input cost, but feeders this year are crazy expensive; $2/lb live weight. So your feeder cattle are part of your cost basis... and 800lb animals are going for $1600 now. It's probably more profitable to just sell the cows directly and not finish them right now.

George said...

I just talked to a few processors and buyers today... Definitely over $2/lb at the sale barn right now for feeder cattle. Old dairy holsteins are going for .73/lb and up. Weaned calves are selling $1/lb and up.

Thanks for the economic write up, if it is all correct, those are indeed small margins. We retail beef starting at $5/lb for ground beef and various cuts, with things like T Bone and Tenderloin going for $15/lb and up... So I'd say he's super cheap...

George said...

Oh.. and when you go back to talk to him.. could you ask what the rates are for the custom cut/baling he's having done? Some guys are per hour, others are per acre. just curious.

grasspunk said...

You're missing the other half of his production. If he's going to be steady state at 70 cows then he's got 35 female carcasses to sell too, either as heifs or cull cows.

His grass-fed open cows are way less cost and maybe more profitable (and less work) than his barn herd of steers.

How many months are the steers in the barn? Are they chained? It looks so in the picture. I assume he puts the manure back on his pastures.

Rich said...

Some of those numbers seem a little off to me.

A 2.1 lb. ADG is about what you would want a replacement heifer to be gaining.

I haven't been on the feeding side of cattle, but when my bulls went through their Bull Test (112 day feeding test), they averaged somewhere around 5.5 lb. ADG. The minimum gain allowed in the tests for Angus cattle is 3.5 lb.

With that much feed, I'd bet that his steers are gaining in the 5-6 lb. range, which would change the profit numbers significantly. A big 700 lb. weaned Limousin steer calf that was put on feed could hit 1400 lb. in about 120 days if he was gaining around 5-6 lb.

And, where are you getting $2.00 for feeders? I live in the middle of cattle country, and 500-550 lb. steers are selling for a little over $2.00, but 800 lb. feeders are about $1.60.

Bruce King said...

Auction results from the nearest large market, toppenish livestock auction, show 700-800lb steers in the 160-190 range; 500lb are higher; 185-200.

I've talked about the input costs of the feed and labor, but you have to consider the input cost of the steer itself, given that prices are so high. So a 500lb steer at 200 adds $1,000 cost to the operation. With that input price, I don't think there's a profit feeding that steer out and selling it at the prices mentioned.

Bruce King said...

toppenish livestock auctioneer notes:


EverStuff Shrimp said...

I'd like to copy the numbers portion of this post, with a link back to the full post, if you're ok with that? I'd like to post it on my blog for the family to read.

Bruce King said...

You're welcome to post any portion you like as long as a link is supplied back to the original.

Adam said...

I really appreciate you blog Bruce. You spend a lot of time explaining the math and business end of farming, which few others take time to do. I really enjoy reading your posts.

Keep up the great work!

Bruce King said...

Thank you Adam.

Steve said...

Sorry, I have a rookie question. After looking at the auction notes, are those prices per hundred weight? So the first steer(s)
"steers 15-479-190.00"
weighed 479 lbs. and sold for $1.90 a pound?

I've never bought at auction, but hope to soon.